And one more twist on the homeowners credit

[Kea]

Client and his then wife (now ex-wife) lived in and owned house since at least 2003 when they became clients. In 2005 client started MBA program out of state. He filed with his then-wife in 2005 & 2006 with the same Austin address. They divorced in early 2007 (not sure of date) and ex-wife moved out sometime before July 2007. After MBA program, client moved to Houston. In July 2007, he started renting out the house. He is now re-married (in 2008) and they are closing on a house in 3 weeks.

At what point did the "principal residency" of the old house end?

1) When he started MBA program out of state -- I don't think so because he continued to file tax return with Austin address and because his (then) wife still lived there.

2) When the divorce was final?

3) When ex-wife moved out?

4) When it became rental property?

New wife still owns a house in Austin. I know she lived in it in early 2008 when I did her 2007 tax return (as single). I still need to find out the dates she moved in and out when she bought it. She doesn't qualify for 1st time buyers, but may qualify for long-time resident.

Thanks

[kcjenkins]

Could be #2 or #3 depending on the wording of the divorce settlement.

[jainen]

>>She doesn't qualify for 1st time buyers, but may qualify for long-time resident.<<

In my opinion, based on the IRS Q&A at My link, she could not be eligible for the credit regardless of her dates because she did not have the SAME residence as her new husband.

[Kea]

Thanks jainen. I had not seen that Q&A page, although I had looked through some of the other IRS Q&A pages. I knew they had to both qualify for whichever credit or they didn't qualify jointly. However, I missed that for the long term homeowner category they had to have the SAME residence.

No credit it is.

Thanks so much.

[jainen]

>>for the long term homeowner category they had to have the SAME residence<<

Yes, it does say "Both spouses must have owned and used the same previous principal residence for five consecutive years out of the 8-year period ending on the date of purchase of the new principal residence to qualify for the credit."

But in my REAL opinion, that may not be true. Remember that IRS pubs and instructions count as very little authority. But Code Section 36, with full authority, puts it this way. "In the case of an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period... "

Contrast that to the wording on the original credit, "The term first-time homebuyer means any individual if such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 3-year period... "

In my opinion, you could make an excellent argument that although the original (first-time) credit required that both spouses qualify, the new (long-term) credit requires only one of the spouses to qualify. I read it as, in the case of the spouse of an individual who qualifies, the spouse also qualifies.

How would you feel about asking your client to be the test case?

[Kea]

Since I have no credentials (CPA, EA), I can't represent him before IRS. So I'll leave it to others to take on the "test cases." His last e-mail states that he was served divorce papers on 1/30/07 forbidding him to return to the house at that time. So he can't get long-term homeowners credit.

Now he's suggested filing separately so he can get a $4000 1st time buyers credit. I'm going to e-mail him the link that shows why he can't do that, either.

Thanks so much.